Bookmakers earn money by accepting bets for a certain market, and thereby adjusting the odds to attract more bets, so that they profit regardless of the final outcome. They do so by offering odds higher than the actual probability of an event. This deviation is what is referred to as the bookmaker’s margin, the amount they charge you for accepting bets.
What’s meant by betting margin?
This can be better understood with the example of a coin toss. You and your friend bet £ 10 each on the toss of a coin. It’s an even bet, wherein you make a profit of £ 10 if it’s tails, or your friend wins £ 10 if it’s heads.
Neither of you hold any advantage under these terms, as the odds of both tails and heads are equal: 50% or 2 or +100.
This is referred to as 100% book or market in the betting terms, wherein neither the person placing the bet nor the person accepting the bet has any margin or advantage. Hence, a 100% book or market can be termed as a market having zero margin.
But, if you bet on a coin toss with the bookmaker, who’s seeking to make some profit, the market percentage is expected to be higher than 100%. The extent by which this market percentage rises over 100% is termed as the margin size that bookmaker has over the bettor, or in simple terms, is the price that a bookmaker charges the bettor for its services.
It’s basically how all bookmakers operate. However, what’s important for all bettors to be aware of is the exact margin that their preferred bookmaker is charging, as it’ll impact the value of the underlying betting odds and eventually their betting profits.
How are betting margins calculated?
It’s important to factor in the odds of all possible outcomes when you’re calculating the margin applied by a bookmaker to a specific game or match. Novice sports bettors may ask what is the need to do so as they are betting only on one possibility?
Please note that when it comes to betting value, it is applicable to the entire market, factoring in the odds of all possible outcomes. Higher margin translates into a lower value for the bettor; the reason why margins are the best means of comparing odds.
Betting margin in case of a two-way market, for instance tennis, can be calculated using the below-provided equation:
(1 / decimal odds for option X) x 100 + (1 / decimal odds for option Y) x 100
Think of a hypothetical tennis match between Andy Murray and Novak Djokovic, wherein the offered odds are as follows:
Andy Murray: 1.942
Novak Djokovic: 2.010
The betting margin in this case can be calculated as follows:
(1/1.942 x 100) + (1/2.010 x 100)
= 51.49 + 49.75
So, the betting margin is 1.24%